Following are the cash flows for three investments (originally presented in end-of-chapter problem 25) that actually occur

Question:

Following are the cash flows for three investments (originally presented in end-of-chapter problem 25) that actually occur at the beginning of each year rather than at the end of each year.

Investment Investment Investment Year Stable Declining Growing $20,000 $35,000 $10,000 2 20,000 30,000 15,000 20,000 3 2

a. Find the present values at the end of time period zero for each of these three investments if the discount rate is 15 percent.

b. Find the future values of these three investments at the end of year five if the compound interest rate is 12.5 percent.

c. Assume that the present value for each of the three investments is $75,000. What is the annual interest rate (%i) for each investment?

d. Assume that the future value for each of the three investments is $150,000. What is the annual interest rate (%i) for each investment?

Compound Interest
Compound interest (or compounding interest) is interest calculated on the initial principal, which also includes all of the accumulated interest from previous periods on a deposit or loan. Thought to have originated in 17th century Italy, compound... Discount Rate
Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal... Future Value
Future value (FV) is the value of a current asset at a future date based on an assumed rate of growth. The future value (FV) is important to investors and financial planners as they use it to estimate how much an investment made today will be worth...

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